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What Non-Business Owners Need to Know about EIS and SEIS Tax Relief
09/05/2017, by Kris Bolton, Tax Articles - Savings and Investments, Pensions and Retirement
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An introduction to the key benefits of the Enterprise Investment Scheme and Seed Enterprise Investment Scheme, by Kris Bolton of Current Capital.

Introduction

A tax bill arrives at everyone’s door - employed and self-employed alike. If you’re self-employed, you probably feel the weight of this tax bill every year, as you handwrite that cheque to the taxman (or send them the payment electronically!). Non-business owners, who are usually paid via the PAYE system, receive their salaries with the tax automatically deducted. Different method but the same outcome - the tax is still paid.

As a PAYE employee, tax is deducted before you receive your hard-earned cash, and many non-business owners think they can’t do anything about the tax – which is actually an incorrect assumption! Most non-business owners may never have even heard of SEIS or EIS, two of the ways that all taxpayers in the country can save some tax each year.

To guide you in broadening your tax-efficient horizons and benefiting from government tax schemes, the private equity specialists at Current Capital are breaking down the basics of EIS and SEIS tax rules - exploring how investing in growing entrepreneurial businesses may provide opportunities to gain tax relief and share ownership in exciting startup and growth-focused companies.

A Little Background on EIS and SEIS

Early-stage and growth-focused businesses seek financial investments in order to progress to the next stage of business growth. Speeding up growth in a business benefits the whole UK economy – and it’s here that HMRC tax schemes are designed to encourage the entrepreneurial spirit by offering attractive tax advantages to investors in startup and growth-focused businesses.

How does this affect you? Through EIS and SEIS, you can invest in these early-stage businesses and gain share ownership, while benefiting from tax relief for doing so. EIS and SEIS are slightly different schemes – so today, we’ll break the basics of both for all non-business owners.

EIS Tax Relief

The Enterprise Investment Scheme (EIS) involves making an investment into a qualifying small or medium enterprise. Non-business owners and business owners alike benefit from the generous tax reliefs outlined below:

Description

Relief

Income Tax relief

30% of the investment amount (i.e. £3,000 on a £10,000 investment)

Maximum investment per tax year

£1,000,000

Capital Gains Tax (CGT) relief

100% CGT free profits on sale of EIS shares, subject to the holding period being met

Capital Gains Tax (CGT) deferral

Can defer up to 100% of investment amount against Capital Gains

Inheritance tax (IHT)

As long as shares are held for 2 years, they are generally IHT free

Minimum holding period

3 years

Loss relief

If shares are sold for a loss, you can offset this against Income Tax or CGT

*all the above are subject to individual circumstances

SEIS Tax Relief

The Seed Enterprise Investment Scheme (SEIS) is similar to the EIS scheme, but differs slightly in the investment limit per tax year and generally comes with even more benefits. Seed companies are generally younger than EIS companies (though not always!) and are, therefore, potentially riskier. The government encourages investment into these schemes by giving even more generous tax relief to both business owners and non-business owners. The highlights of the SEIS scheme are below:

Description

Relief

Income Tax

50% of the investment amount (i.e. £5,000 on a £10,000 investment)

Maximum investment per tax year

£100,000

CGT relief

100% CGT free profits on sale of SEIS shares, subject to the holding period being met

CGT write off

Can write off up to 50% of investment amount against any capital gain in same tax year

Inheritance tax

As long as shares are held for 2 years, they are generally IHT free

Minimum holding period

3 years

Loss relief

If shares are sold for a loss, you can offset this against Income Tax or CGT

*all the above are subject to individual circumstances

Both the SEIS and EIS schemes can form a part of your overall financial plan, as well as efficiently reducing your tax bill. Better yet, on top of what you stand to save, you also benefit from ownership (and potential profit!) from these growing entrepreneurial businesses.

About The Author

Kris Bolton is a partner at financing company Current Capital. Kris specialises in helping individuals and companies to utilise and benefit from all available tax-efficient programmes, enabling them to either save money, or raise money.

(W) www.currentcapital.co.uk

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